The maximum pay of top civil servants will rise from £179,000 to £245,000 a year in a shake-up announced yesterday.
The Permanent Secretaries who head each Whitehall department will be able to earn annual bonuses worth up to 10 per cent of their salary if they deliver government objectives, but they could have their pay frozen if they fail.
The increase is aimed at attracting people from the private sector. Tony Blair, who has privately expressed concern about the performance of Whitehall mandarins, is keen to recruit outsiders, but high-calibre candidates have been deterred by the salary gap.
A Cabinet Office spokesman said the reforms were designed to encourage recruitment from the private sector and to "reward people properly" for their contribution to public services.
Yesterday the Cabinet also launched a charm offensive aimed at healing the wounds caused by the feud at the Department of Transport, Local Government and the Regions between civil servants and Jo Moore, the former special adviser to Stephen Byers.
The Secretary of State for Transport told the Cabinet he had sent a message to his officials praising their "dedication and hard work". However, an investigation is continuing in an attempt to track down a small number of press officers suspected of leaking stories to the press aimed at damaging Mr Byers and Ms Moore.
The shake-up announced yesterday does not mean the current 33 Permanent Secretaries will receive an automatic pay rise and the highest paid would earn less than £200,000; the ceiling of £245,000 will be open only to new recruits. At present, the top earner is the Cabinet Secretary, Sir Richard Wilson, who is paid between £175,000 and £179,000.
In a written Commons reply, Mr Blair announced that the Government was implementing recommendations from the Senior Salaries Review Body for a 2.5 per cent rise in April for 3,300 senior civil servants – less than the 3.7 per cent announced for nurses and the 3.5 per cent for teachers.
The salaries of MPs and ministers, which are linked to the annual rise for senior officials, will also rise by 2.5 per cent. They will also receive a £2,000 increase, the second half of a rise they voted themselves last year. From April, MPs will be paid £55,118.
In yesterday's package, cabinet ministers will see their salaries rise from £117,979 to £124,979, ministers of state from £85,178 to £91,358 and junior ministers from £76,178 to £82,624. Mr Blair's salary will go up from £163,4218 to £171,554.
The review body also recommended that senior military personnel receive a rise of 2.5 per cent, with an extra £10,000 for Admiral Sir Michael Boyce, the Chief of Defence Staff, who will see his salary go up to a maximum of £178,000.
The Government decided to phase in an 8 per cent increase recommended for judges, who will receive 3.6 per cent this year and the remaining 4.4 per cent in April 2003. The senior judge of England and Wales, Lord Chief Justice Woolf, will receive £185,145 when the full 8 per cent increase is implemented next year.